At the purist level, profits may be one of the key measures of sucess of a business, however it is cash that determines its ultimate survival. It is vital to the viability of your business to take all steps to maximise liquidity in your business. Following I have compiled a few tips for you to consider.
- Prepare regular cashflow forecasts
This basic management tool will allow you understand where and when cash is coming in as well as highlight any possible cash crises and how long they potentially may last. A forward looking accountant can always help you with these if you need assistance.
- Keep an eye on your entire cash cycle
If you are in a difficult position, skew promotions towards those services or products which consume less resources or which can be turned into cash more quickly.
- Make full use of your terms of trade
Don’t pay your suppliers too early or outside their agreed trading terms. Be a customer with a strong and reliable reputation so that you are able to negotiate favourable trading terms and special deals.
- Keep an eye on personal drawings
In my time as a practicing accountant this was the #1 issue in creating cashflow problems! Take a modest, regular salary and leave the remaining cash in the business until it has sufficient funds to pay an extra dividend. Keep an eye on other expensive benefits as well.
- Don’t hide from the bank
Keep the lines of communications open with your bank. Demonstrate that you are on top and understad your cashflow position. Provide financial information when required and ensure that when you need them they are there to support you.
A key principle in stock management is to have the right level of stock to satisfy the needs of your customers. Tips to consider here are:
- The lower your level of stock the lower the amount of cash you have tied up
In this instance, your cash is then available for other productive uses. A by product of this also is that you free up space and reduce the risk of acculating unsalable stock.
- Get rid of obsolete or slow-moving stock
Carrying too much stock or dead stock means that you are tying up cash. Removing it will help you to focus on the stock that generates the cash and the margins that keep you in business.
- Maintain necessary stock
In order to maintain sales momentum and ensure that customers are never disappointed over the core products in your range.
- Tighten the buying of stock
Understanding the volume of sales per stock item will help you buy the correct amount. You need to carry enough stock to satisfy customers’ immediate needs but not carry too much means you are tying up cash that could be put to better use.
- Negotiate deals with suppliers
Volume discounts might work but if cash is tight it might be preferable to negotiate discounts for prompt settlement or agrre to smaller more frequent deliveries from your suppliers to even out your cashflow. Key here is to look at all possible options and keep a strong relationship with suppliers.
- Don’t have your stock buying decisions driven by discounts
Focus on buying core stock that you can sell at a profit in a reasonable time frame.
About the author:
Richard Coumans is an experienced Business Coach specialising in growing and drastically improving the profitability of entrepreneurial privately owned businesses. My skill set gives me an amazing understanding of how the numbers link to the business strategy and the practical experience to develop and implement strategy to maximize those numbers.
m. 0412 119 232